At BNY Mellon Wealth Management, the focus has been on family governance as a differentiator, and a way of building relationships with the whole family, says Tom Rogerson, managing director of family wealth services. But the firm’s approach emphasizes practicality over an in-depth psychological process.

Transferring
wealth is about much more than tax and estate planning, as wealth managers are
discovering – often at their peril. With an unprecedented level of wealth in
transfer in the US - as tax and demographic factors converge to drive the trend -
wealth managers are asking themselves what they can do to retain a healthy
share of next-generation business.

AtBNY Mellon Wealth
Management, the focus has been very much on family governance as a
differentiator, and a way of building relationships with the whole family. But
Tom Rogerson, managing director of family wealth services, says the firm’s
approach emphasizes practicality over an in-depth psychological process.

Rogerson has been
at the firm for 10 years, having joined from the estate planning industry.
However, he soon began to specialize in managing family dynamics and conflict,
and in 2006 designed a program around this that saw his focus shift solely to
this area.

He says the
discipline is “absolutely becoming more prominent.” In fact, he compares it to
estate planning industry when he joined it in 1983. At that stage it was a
cottage industry, says Rogerson, but has now become much more mature; he sees
the family dynamics business going the same way. “Currently, if you know where
to go you can get some great advice – but you have to know where to go.”

Tax
opportunities

Of course,
current tax opportunities have put legacy issues at the heart of the wealth
management conversation. These include the $5 million exemption in the estate
tax under the 2010 Tax Relief Act, as well as the $5 million exemption from the
gift tax and generation-skipping tax.

“For a husband
and wife that adds up to $10 million, and advisors are saying ‘you should step
up and transfer this now’ but often the family isn’t ready,” says Rogerson.

Neither are
wealth managers ready according to figures for retaining next-generation
clients, which are reported to be in the region of 5-10 per cent. “The question
is how do you build this business? And family governance helps us build it by
making relations with all the family,” Rogerson tells Family Wealth Report.

An easy sell

He says that,
despite the taboo surrounding some of the subjects inherent in family dynamics
– death, conflict – it’s an easy service to introduce to clients.

BNY Mellon
introduces the offering at an initial meeting with potential clients, says
Rogerson.

“We don’t charge
for this but it is a tremendous differentiator. Most high-end investment firms
focus on investment performance and fees in the first sales meeting – we
absolutely focus on that too, but we also bring this in.”

This is despite
the fact that many HNW individuals are unaware of the need to tackle these
issues head on.

Rogerson cites
two studies to illustrate this point. One, by Roy Williams and Vic Preisser,
surveyed 500 families that had made and lost their fortunes, which shows – from
families that had actually been through the experience – that the predominant
cause was a breakdown in communication and trust. On the other hand, a
forward-looking study by Family Office Exchange, of families which are
currently wealthy, shows they expect their wealth to most likely be eroded by
factors such as investment, taxes and politics.

The point: there
is a huge disconnect between the real and perceived threats to family wealth. Indeed,
Rogerson says very few clients approach BNY Mellon specifically for this
service, but are impressed when they learn about it.

“If [Williams
& Preisser] are anywhere close on that, we thought: wouldn’t it be wise to
help families with this?” he explains.

BNY Mellon’s
approach

Rogerson runs
most of the family presentations to audiences internationally, across the US,
Europe and Asia, himself, while the firm has also trained further members of
staff internally to run individual family meetings.

He describes the
firm’s approach as being very practical, as opposed to delving into the intricacies
of family relationships.

“Many companies,
when they realized there was a need for this service, brought in a
psychologist, but we realized there was a disconnect between this approach and
the mentality of the entrepreneurial nature of many of our HNW customers. This psychology
approach was in depth, but there weren’t many hard results and it’s not very scalable,”
says Rogerson.

While he is not
saying there is never the need for a psychologist to come in – and BNY Mellon
could outsource this for a customer if it were necessary – it is not what the
firm itself is looking to offer.

He also
emphasizes that, when it comes to family governance, a company can only be a
facilitator; given the right tools, the family has to do a lot of the hard
work. Again, this goes against the deep psychology approach.

“We at BNY Mellon
will do the heavy lifting for investment management, but with family governance
the family have to do the heavy lifting – we can get them started.”

How will the
industry change?

When asked about
whether the industry is developing, and whether BNY Mellon sees its competitors
launching services in this space, he says “absolutely”. He also says that, as
well as the banks and large RIAs, more and more small firms are incorporating
this offering.

In terms of in-house
versus outsourced offerings, Rogerson says it’s not an either/or approach.

“Outsourcing can
be really critical if families want to go into real detail – because that’s not
our specialty. It complements what we do and helps us establish relationships.”

So in a world of
money in motion, perhaps family governance could really be key to making some
of it stick for wealth managers.